Call for caution on BCX, Telkom

By Leon Engelbrecht for Telkom
Johannesburg, 06 Jun 2007

Financial analysts are calling for caution on Telkom SA and Business Connexion (BCX) shares, which rose yesterday on the expectation the Competition Tribunal will allow the two to merge.

The Competition Commission earlier this year ruled the telco's R2.4 billion bid for the computer services company is anti-competitive, before passing it onto the tribunal for a final decision.

Shares in Telkom yesterday rose 5.32%, to R173.30, while Business Connexion's shares gained 3.13%, to R7.95. They were still trading around that range this morning.

Two analysts independently said it is almost impossible to call which way the tribunal will rule. One, who declined to be named, said someone has clearly taken the position that the deal may go through, "though why is difficult to say".

Irnest Kaplan, MD of Kaplan Equity Analysts, agrees that "there are people who are speculating on whether the deal will go ahead". He cautions that they may well burn their fingers and money as they are effectively gambling.

Foolish risk

"Speculating about this is not a good idea. Anyone who invests a lot of money on which way the deal will go, is foolish. That is what I'm advising my clients," he says. "Have patience. This is something for the risky investor."

Kaplan also discounts the idea that the move in the Telkom share price relates to the merger. "There are too many other factors at play in their case," he says. "The BCX share has been quite up and down over the course of this deal [and will continue to fluctuate]. I've always held the view that it [the merger] shouldn't go ahead and I was happy the Competition Commission opposed it."

He adds that he attended part of the tribunal hearing on the matter and could not get "a feeling for which way it will go". Telkom had a strong legal team and made a strong appeal. "I honestly can't tell you what will happen."

Telkom and BCX last week extended the date for meeting conditions for the acquisition from 31 May to 1 July. The sole remaining condition is regulatory approval. The tribunal is set to hear final arguments on 22 June, before making a decision. The hearings started on 12 April.